From the horse’s mouth

“Quoting the economist Herbert Stein in saying that “if something cannot go on forever, it will stop,” Bernanke said that the federal government must stabilize its budget.

The question, he said, “is whether these adjustments will take place through a . . . careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.””

The above is confirmation that fiscal revenue is indeed declining thus evidencing an underlying deflationary bias. The above also means that the authorities are aware of the potential outcome of their monetary policy. Bernanke’s astounding comment shows that he is familiar with Austrian economics and understands the mechanics of what is happening. Compare his comment above to the following:

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved. — Ludwig von Mises”

Since it appears that Bernanke does understand the dynamics involved, then the legitimate question that comes to mind is why persevere in a course of action that is clearly and glaringly politically expedient thus corrupt and detrimental to the well being of the nation and, by virtue of the US$ being the global reserve currency in a floating exchange rate environment, detrimental to the stability of other nations too.

Even more absurd is how Bernanke is willing to take credit for some things but not for other things that are intimately related. It is disingenuous of Berrnanke to deflect even partial responsibility for the rise in prices of commodities given that he is taking credit for the increase in value in the financial market for example. But more to the point, Bernanke is trying to make lemonade with the lemons he has unwittingly been left with. Bernanke is obviously counting on people’s short attention span. Namely, the original stated intent of QE was to keep interest rates artificially low by artificially propping up the bond market. What has happened instead is that despite the hundreds of Billions spent on QE the bond market has sold off regardless and interest rates took off effectively increasing the cost of new loans for companies and individuals.